New York City. My secondary DNS server was attacked and hijacked by an unknown person.
The hacker gained access to the server using the "pamslam" and "vixie-cron root sploit" techniques, and proceeded to use my server to attack other servers. I cut power to the server within a few minutes of the attack, which should have ended the problem.
Unfortunately, one of the people who was attacked from my server continued to cause problems for several days. Someone calling himself Fred Flintstone assumed I was personally responsible for attacking him, and with vigilante fervor he found and emailed a number of my clients, accusing me of "performing illegal activies [sic] ... [and] unethical and deviant behavior".
No permanent damage, though there was long-term damage to the server.